Utility Week

UTILITY Week 1st April 2016

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28 | 1ST - 7TH APRIL 2016 | UTILITY WEEK Markets & Trading Analysis T here is no doubt that the water market will open on time, and companies must make sure they are ready." These are the bold words of Severn Trent Water's chief financial officer, James Bowling, late last year, and a statement which has since been echoed on numerous occasions. In the existing water market, businesses that are supplied with more than five mega- litres of water a year – a threshold akin to an annual bill of about £9,000 – can choose their water retailer. Today (Friday 1 April) marks a year to the day until market opening. From 1 April 2017, the market will open to the remaining 1.2 million businesses and other non-house- hold customers of providers based mainly or wholly in England – expanding the cur- rent £540 million-a-year water retail market to one worth around £2.5 billion, the largest in the world. The government estimates that the new market will deliver around £200 mil- lion of overall benefit to customers and the UK economy by separating out retail services – including things like billing and customer services – from wholesale activities. It is a moment for which water companies in England have been preparing for years, ever since competition was merely a twinkle in the eye of government, but this is not the first water market to advance into the world of competition. In April 2008, aer a great deal of debate and deliberation, Scotland became the first country in the world to open up water and sewerage services to competi- tion for all public sector, non-profit and busi- ness organisations. Wics – Scotland's answer to Ofwat – worked hard to develop a framework for competition that is simple, fair, and pro- motes value and choice. This work appears to be paying off because the country reports that there have been significant improve- ments for water customers, including more than £36 million in savings. Concerns have been expressed that the current proposed 2.5 per cent retail mar- gin will stifle competition when it opens in England. However, Ofwat claims that recent analysis of the energy market by the Compe- tition and Markets Authority suggests that a 2.5 per cent net margin for retail activity is "broadly appropriate". Plans for the new competitive market in England were first set out in 2011 in the gov- ernment's Water White Paper – Water for Life – to "deal with the challenges facing the water industry" and to "encourage better customer service and protection for the envi- ronment". Ofwat also sets out, in its Water 2020 vision for the water sector, plans to pro- mote competition elsewhere in the industry. With the Water Act 2014, the idea moved from theoretical to definite, establishing a framework to be used to create a new water market. The act laid out plans for new entrants to be able enter the water sector and provide new sources of water or sewerage treatment services. On top of this, a national water supply network is to be established to make it easier for water companies to buy and sell water from each other, and allow owners of small- scale water storage to sell excess water into the public supply. The market will work in much the same way as those for other utility services – and link with the existing market in Scotland – where a range of independent suppliers compete for customers by offering them the best deal. The key organisations responsible for delivering the new market are the Depart- ment for Environment, Food and Rural Affairs (Defra), Ofwat and Market Operator Services Limited (MOSL) – headed by chief executive Ben Jeffs. The programme was overseen by Open Water Markets Limited until August 2015, when its activities were transferred to MOSL and Ofwat because Open Water was deemed to be a public body, and was therefore restricted in its ability to move as swily as the programme required. MOSL is responsible for delivering the core IT systems that will enable registration, customer switching and settlement between wholesalers and retailers, and will offer its water company members support and advice on their business readiness activities as the opening of the new market approaches. The English incumbents have been work- ing on the quality and completeness of their data for more than 18 months, and many have been to Scotland to speak directly with participants north of the border about the best ways to deal with, and find solutions to, the problem. MOSL is heavily involved in these talks, and with finding a solution that will ensure customers get acceptable service when the market opens. There are already signs of new entry into the market. Portsmouth Water has announced Water market opening In exactly one year's time the non-household water market in England and Wales will open to competition. Lois Vallely takes an in-depth look at how preparations are coming along. " On 30 November 2015, the Treasury shocked the water sector by announcing plans to introduce retail competition to the domestic market as early as 2020. The proposal came as part of a broader package of reforms to "boost competition" in a number of sectors in England – including water, banking and telecoms – to get a better deal for consumers. Ofwat will conduct an in-depth review into the costs and benefits of extending retail com- petition to household water customers and will release its assessment by summer 2016. The announcement was a surprise for water companies, focused on opening the market to competition for non-domestic customers. They were not expecting domestic competition to follow so swily. The plans were branded a "total disaster" by Anglian Water chief executive Peter Simpson, who said that if the timescale set out by the Treasury was enforced, both the non-domestic and domestic markets would suffer. "We would do two things really badly," he said. However, Ofwat chair Jonson Cox has urged water companies to rise to the "legitimate chal- lenge" of domestic competition and "change the way they think about it". "Unexpected chal- lenges are there to be met," he said. DOMESTIC COMPETITION

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